Good day, and thank you for joining us. Welcome to the Quanterix Corporation Q4 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the presentation, there will be a question-and-answer session. Please note that today’s conference is being recorded. I will now turn the call over to your first speaker, Vandana Sriram, CFO. Please proceed.

Thank you, and good afternoon. With me on today's call is Masoud Toloue, President and CEO of Quanterix. Before we begin, I would like to remind you of a few things. This call will be recorded and a replay will be available on the Investor Resources section of our website. Today's call will contain forward-looking statements within the meaning of the US Private Securities Litigation Reform Act. These forward-looking statements are based on management's beliefs and assumptions and on information available as of the date of this call. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors that may cause our actual results, performance or achievements to be materially different from any future results performance or achievements expressed or implied by the forward-looking statements. The risks and uncertainties that we face are described in our most recent filings with the Securities and Exchange Commission. To supplement the company's financial statements presented on a GAAP basis, the company has provided certain non-GAAP financial measures. Management uses these non-GAAP measures to evaluate operating performance in a manner that allows for meaningful period-to-period comparison and analysis of trends in its business. The company believes that such measures are important to comparing current results with the other period results, and are useful in assessing the company's operating performance. The non-GAAP financial information presented here should be considered in conjunction with, and not as a substitute for, the financial information presented in accordance with GAAP. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures set forth in the appendix of the presentation posted to our website and in the earnings release issued today. I will now turn the call over to Masoud.

Thank you, Vandana. Starting with Q4 of 2023, we hit record consumables production, delivering $17.5 million in revenue, contributing to $31.5 million of total revenue. Non-GAAP gross margins improved 515 basis points versus fourth quarter prior year and cash used was $6.4 million, leaving us with over $320 million of liquidity on our balance sheet and in a strong position to deploy capital for growth investment. As a reminder, we began a corporate transformation process six quarters ago with a focus on three core principles; quality, innovation and positioning Quanterix to unlock the value of the translational markets. In 2023, we built newly formulated assays, improving margins and manufacturability. Testing capacity in our Accelerator and manufacturing output improved by 50% and 300% respectively, each with new capacity to grow threefold from where they are today. New assays rolling off production lines are now getting into the hands of our first customers. These accomplishments over six quarters are the result of our team's focus, determination and strong operating discipline. The efforts have positioned us for better quality, higher throughput, faster innovation and are reflected in our financial performance for 2023 with revenue growing 16%, non-GAAP gross margin improving over 1,300 basis points, all while we reduced cash burn by $40 million in 2023 as compared to 2022. In 2024, our three strategic objectives are growth in menu, new innovation in tech and Alzheimer's disease diagnostics. Starting with the first objective, we intend to leverage our newly built product development engine by introducing approximately 20 new assays by the end of this year. This is not a small feat. Second, we're allocating resources to expand our technology platform. While fortified plex satisfies the vast majority of neuro programs today, our goal is to have Simoa not just in specialty neuro labs but Simoa in all labs. We're working on multi-channel lossless resolution, which means no loss measurement of the lowest quantity of protein that can be distinguished from the absence of that protein across multiple channels. Developing this would be a significant breakthrough. Expanding plex, maintaining sensitivity, improving footprint and reducing cost will enable research and clinical work in immunology and oncology laboratories. I expect we'll discuss more towards the end of the year. Finally on diagnostics, our stated goal is to build the global testing infrastructure for Alzheimer's disease. Identifying patients by invasive methods, including PET and lumbar puncture is not scalable and limits access to newly available Alzheimer's disease modifying therapies. There's now abundant evidence showing non-invasive testing methods using blood based biomarkers are equal to or better than invasive methods, and we believe they'll be the best solution for broadening access of therapies to patients. It has also become clear that identifying patients early in a disease cascade results in better patient outcomes. And this is where we believe Simoa technology will play a critical role. I want to make an important point here. Simoa digitally interrogates proteins in femto liter wells, providing exquisite signal-to-noise separation and amplitudes a couple of orders of magnitude beyond the noise floor where other technologies reside. The combination of ultra sensitivity and precision enabled much lower limits of detection and quantitation than other technology. So as part of a diagnostic follow-up, if a Simoa p-Tau 217 test is used throughout the diagnostic workup, a physician can track a patient's levels if symptoms progress or if they undergo treatment. Other technology may not have the sensitivity or precision to do this across the full range of p-Tau 217 concentrations that are diagnostically relevant. Precision at the very low concentration levels that p-Tau 217 is present in blood allows Simoa assays to provide high diagnostic accuracy, given the need to resolve small changes around cut-offs corresponding to low and high likelihood of amyloid pathology. Our test uses a two cut-off design as recommended by the NIA-AA and other expert groups, providing a high confidence result extending to both ruling in and ruling out amyloid pathology. This has the potential to reduce approximately 70% to 80% of PET scans and lumbar punctures during the Alzheimer's diagnostic process. Over the next two years, we will allocate $20 million of capital to advance the access of our diagnostic tests. We will also focus our clinical studies for diagnostics in two main areas. One, development and validation of a multimarker blood test and prospective studies with health systems to establish blood based biomarkers as part of a routine Alzheimer's diagnosis and treatment. For the multimarker test development and validation, we are wrapping up the first two phases of two important studies, BioHermes and CANTATE. BioHermes is a prospective study that enrolled individuals from 17 sites across the US, including significant numbers of underrepresented populations and collected blood samples as well as PET images. Phase 1 of the study is now complete and with publications expected later this year. CANTATE is our ongoing collaboration with researchers at the Amsterdam Medical Center where blood is being collected as well as CSF with corresponding biomarker measurements to assess amyloid. We expect to announce results from Phase 1 of these studies later this year. Quanterix is also sponsoring and taking part in several new studies to establish blood biomarkers as part of routine Alzheimer's diagnosis and treatment. In addition to helping expand the adoption of laboratory developed tests based on Simoa technology, such as plasma 217 and our planned future multimarker test offering, these studies are expected to provide clinical validation data to support an FDA submission for an Alzheimer's blood biomarker diagnostic. In 2024, we will focus our efforts on building out our commercial capabilities to support diagnosis of Alzheimer's disease, and what we would expect to be a corresponding uptick in the adoption of new therapies. We've already onboarded a dedicated commercial team and they've hit the ground running. We are pleased to announce that we're now working with five leading health networks in the US, an important step as we build out the infrastructure that supports testing for this disease. Each will have access to the LucentAD test at our CLIA certified lab or our instruments and assays to develop and validate their own laboratory developed tests. These networks will provide reach to over 140 hospitals caring for approximately 21 million patients.

Thank you, Masoud. I will now cover additional details of our fourth quarter and full year performance and will provide guidance for 2024. As Masoud mentioned, the 2023 year end capped our corporate transformation and we've made significant execution progress over the six-quarter program. Our total revenue for the fourth quarter 2023 was $31.5 million, an increase of 22% from the fourth quarter of 2022. Our consumables revenue increased to $17.5 million or 56% compared to the fourth quarter of last year. This was a record quarter and we noted continued strong demand for our consumables offering coming from high interest in supporting neurology. Instrument revenue was $3.3 million, a decline of 39% over the fourth quarter of 2022, similar to other tools companies and continuing the trends we saw in the second half of 2023. We added a net 20 instruments to our installed base in the fourth quarter of 2023. Fourth quarter revenue from our Accelerator Lab was $5.6 million, an increase of 71% over the fourth quarter of 2022. We continue to observe strong demand for our Accelerator services and this has been especially valuable to us in the current environment where tools have been capital constrained. We're unique in our industry in that CapEx pressure has not limited customer access to our Simoa technology. When the budget environment changes to be more favorable to capital purchases, we expect some rebalancing of instruments and service mix. Moving on to gross margin for the quarter. Our GAAP gross profit and margin was $16.8 million and 53.2% respectively for the fourth quarter of 2023 compared to $12.6 million and 48.8% respectively in the fourth quarter of 2022. Non-GAAP gross profit and margin was $14.7 million and 46.5%, respectively in the fourth quarter as compared to $10.7 million and 41.3% respectively in the fourth quarter of last year. The year-over-year margin expansion reflects the impact of our transformation efforts and favorable mix from increased sales of higher margin consumables and Accelerator services. Our fourth quarter 2023 GAAP operating expenses were $33.7 million compared to $34.5 million in the fourth quarter of 2022. The fourth quarter of 2023 included one-time impairment and restructuring charges of $1.6 million primarily from a lease impairment as compared with similar charges of $9 million in the corresponding prior period. Excluding the impact of impairments, GAAP operating expenses increased $6.6 million and non-GAAP operating expenses increased $6.4 million due to higher R&D and personnel-related costs. Our operating loss declined from $22 million in the fourth quarter of 2022 to $17 million in the fourth quarter of 2023 due to higher consumables and Accelerator sales and improved gross margins. For the full year, these results bring us to $122.4 million of revenue, delivering 16% growth. Now I will provide some additional context on full year revenue. 62% of our revenue came from North America, 26% from Europe and 12% from Asia Pacific with mid-teens growth across all geographies. Over 80% of our revenue came from neurology where we continue to have a highly differentiated position. Moving on to liquidity. We ended the fourth quarter with $323.9 million in total cash, cash equivalents, marketable securities and restricted cash, a net usage of $6.4 million during the quarter as compared to cash usage of $5 million in the fourth quarter of 2022. For the full year, our cash usage was $17.4 million, a reduction in cash usage of $40.3 million. We continue to have a strong balance sheet with ample cash to fund growth. Let's turn to guidance for 2024. We expect full year revenue in 2024 to be in a range of $139 million to $144 million. This guidance is for our research-only business and does not include revenues from diagnostics testing, which to date have not been material. Diagnostics is a nascent area closely correlated to therapy adoption. And at this time, it is premature to provide guidance. However, with the commercial team that is now in regular contact with neurology centers and hospital systems, we are in a unique position to measure blood testing uptake and we will provide quarterly updates on our progress. For the full year, we expect GAAP gross margin to be in the 57% to 61% range and non-GAAP gross margin to be approximately 51% to 55%. As with revenue, this guidance excludes margins from diagnostics testing. Lastly, on to capital allocation and cash usage. We expect our cash usage for the full year to be in the range of $25 million to $30 million and an increase in cash usage of approximately $10 million at the midpoint. As Masoud mentioned, our priorities in 2024 will be growth in menu, innovation in tech and ramping up diagnostics. We will spend approximately $5 million to $10 million on the first two initiatives and approximately $10 million to $15 million on diagnostics with additional spend on diagnostics expected in 2025. This approximately $20 million investment in our strategic initiatives will be offset by approximately $10 million of reduced cash burn from revenue and margin growth. We will continue to drive our business to reduce cash burn and still expect to achieve cash flow breakeven on this business at approximately $170 million to $190 million of revenue. This guidance includes the incremental investment in menu and innovation. At the same time, we will invest capital to grow diagnostics. And consistent with our comments on revenue, it is premature to provide a cash flow breakeven point for diagnostics. In summary, we are aligning our capital allocation priorities to our areas of opportunity, and we will put our capital to work to drive growth in these exciting areas. I will now turn it back over to Masoud before we take your questions.

Thank you, Vandana. I want to say we are very proud of the talent density at Quanterix. It's the super team who has made difficult and painful changes in the company. This would not have been started or completed if we did not believe in the output of work. Our mission is to provide the tools to enable discovery and improve patient outcomes. This is not just a statement that goes on a webpage or wall, it is very real and tangible and our team is in active delivery mode. Now we can take some questions.

Our first question is going to come from Matt Sykes with Goldman Sachs.

Maybe just starting out. I want to go back to the announcement you guys made on Monday about the health systems and just a couple of things. One, is that included in the guidance? I'm assuming that's the diagnostics portion that you're not including. And two, how do you think about, one, sort of the timing of that revenue coming through? And the other point is, in terms of the mix, I know you had said it could be instruments assays, Accelerator Lab. How are you thinking about the potential mix of that partnership over time? And I've got a follow-up.

So I think the partnership announcements we had a couple of days ago was super exciting. It is two things. One, note, the versatility of our offering is twofold. First, we're able to offer the platform and the testing, 217 test and enable hospitals to do their own testing. But at the same time, we're also enabling access to our Accelerator Lab where hospitals or physicians can send samples to the Lucent lab, and we're able to offer services there. It's a really unique offering and we're able to keep in touch with neurologists and really stay up to date on the latest of what's happening. You're right in that this is diagnostics revenue that's not imputed in the guidance. Right now we are not including guidance for diagnostics. And then from a mix perspective, are you referring to the mix on test send out versus enablement or some other?

That mix, the sort of how many do you expect to buy instruments to it themselves, how many do you think will send out to you and where do you think the bulk of the revenues could come from for this partnership?

I mean the five that we listed, there's different ranges. So some of them are going to start as tests sent out as they're putting together a platform and getting their tests up and ready at their own laboratory. And then, some wanted offer testing right off the bat with our platform. So it's a little bit of mix and it's still early to get a good sense of how that's going to shake out for the year.

And then maybe for Vandana. Just maybe some color on the balance of sort of consumable instrument versus lab services within that 2024 guide, how do you see that kind of shaking out? I know you made some comments on the capital equipment environment, which we're all very well aware of. But just any color on what you perceive to be that mix shift over the course of the year?

So at this point, we're really looking at 2024 at least in the first half being very similar to the mix that we saw in 2023. So still expecting to start the year with some amount of constraints on the instrument side. But again, seeing really, really good demand on the Accelerator side. We have a lot of interest and a lot of, I'd say, quoting activity going on right now for accelerators. We continue to see accelerators be really strong and consumables also come out pretty strong. Now consumables, the initial part of the year will be all about converting customers to the new assays. So we expect there will be some transition period there where we will have to support customers on the older assays and then eventually bring them on to the new assays. So there might be some amount of choppiness in that first quarter as we get through that. But from that point onwards, we expect consumables growth to be really steady.

And our next question is going to come from the line of Puneet Souda with Leerink Partners.

So a couple of questions here. Maybe first on just FDA submission. What does that look like and the timing of approval, p-Tau 217, what sort of traction you're seeing there? And should we assume that, that will be as one of the standalone tests or it would be a multimarker test that comes out of FDA? I recognize it's 217 at the LDT already. Just want to understand sort of how you're contemplating FDA approval for the product? And then I have a follow-up.

So 217, as you said, it's already in LDT. We've committed to submitting the 217 biomarker to the FDA this year. We've begun some discussions. All of our clinical trials or the prospective trials that we’re running are designed to get additional data and validation for an IVD submission on 217, and that's something we're going to do this year. From a multimarker standpoint, we've also said that in 2024 we'd release a multimarker LDT, as well as then in the future do something on IVD for multimarker. But from a sequencing standpoint, we have the 217 LDT today, FDA IVD submission, multimarker LDT and then subsequent submission for that. And so the BioHermes, the CANTATE and then a couple of the new collaborations we're working with now all provide clinical evidence development for not just IVD but reimbursement in the future.

A larger question here is, based on the feedback from the field, can you discuss the adoption of the 217 LDT? I know your commercial team is already active and collaborating with some larger centers. The key question is, given that Leqembi and Donanemab expectations have settled at a lower point, what insights are you gaining, and how should we evaluate drug adoption trends?

I believe that drug adoption is somewhat indicative of patient testing. In our conversations with neurologists and hospitals, it's clear that there is a significant demand for additional tools. The data clearly shows that the 217 test outperforms any other biomarkers available. For studies that aim to monitor patients in the early stages over time, a solution is necessary that can detect low levels with high sensitivity, especially as the blood levels of 217 increase throughout the disease's progression. Moreover, a substantial part of our business involves clinical trial work with pharmaceutical companies exploring combinatorial therapies and other treatments for Alzheimer's, which we anticipate will lead to a boost in research and an increase in clinical trials. From a patient measurement perspective, drug adoption is a reasonable indicator, and we will continue to track this, providing more information as the year progresses. We believe that with these new therapies, we are only at the beginning of advancements in Alzheimer's treatment.

And then just my last one on the RUO technology that you talked about multichannel lossless resolution. Can you just remind us what plex you're targeting for that?

I would say mid to low plex. I mean, one of the key guiding principles at Quanterix is that we're very translational. So we're involved in identifying these markers and the translation of them, support of these markers for therapies and then eventually testing and diagnostics. And so when you look at what or how you do that, it's usually anywhere from where we are today, one to four or five plex to 2 times, 3 times more than that. And anything more than that really becomes a discovery application and we're more on the translation side. So that's where we're focusing when we look at future technology.

And our next question is going to come from the line of Kyle Mikson with Canaccord Genuity.

I want to ask a longer term question for you, Masoud, and that is the path to reimbursement for the neurology test portfolio. I guess this is a multipart question. So what's the current plan to this point, including the CPT that's expected in this year? Second, there's other companies with protein-based tests with Medicare coverage, but how does the recent MolDX proteomics OCD kind of impact Quanterix possibly? And third and finally, you're not trying to get approval for LucentAD p-Tau 181, but are you still trying to get reimbursement for that test like how would all this work for that particularly because that's more of a near term thing?

From a reimbursement perspective, we are pursuing a CPT code for our Alzheimer's blood biomarker, specifically the 217 protein. It has become very evident that 217 is a better marker compared to 181, so we are concentrating more on 217 for testing. However, 181 is still available as an LDT, and there is considerable interest and ongoing clinical trial work concerning 181, so it remains an option. From the reimbursement angle, we are focusing on 217. This is just the initial step. Additionally, as we advance our prospective study and collaborate with VUmc on CANTATE, we aim to develop a multimarker algorithm that combines several markers to offer better differential diagnosis and potentially greater sensitivities than any individual biomarker, which will require its own reimbursement framework. Regarding your question on MolDX, we are very pleased that these multimarker algorithms are being accepted. MolDX is highly regarded, and this acknowledgment is significant. We believe it is crucial for the field and confirms the direction we are taking.

Can you please confirm if the 217 test has sufficient data for approval and reimbursement? I know you mentioned the CANTATE and BioHermid studies. Do you think that will be adequate? And one for Vandana…

We are very confident with the 217 results. We've published a white paper that includes the results from BioHermes and the Amsterdam cohort combined. When we looked at these two cohorts, we analyzed data from over 850 patients, achieving sensitivity above 90% and an overall accuracy of around 91%. We believe the data for 217 is solid.

I have a question for Vandana. The guidance seems to indicate diagnostic spending of around $10 million to $15 million for investment in 2024, which suggests about $5 million for 2025. Could you explain how you plan to allocate diagnostic investments over the next two years? Additionally, if you were to receive any diagnostic revenue this year, would that be reported with a negative gross margin?

So on diagnostics, we had signaled earlier that we would spend a total of approximately $20 million between 2024 and 2025. For 2024, most of that spend is on the commercial side. So we've already onboarded our teams that happened very late last year. We have a full year of cost for that team as well as everything that's needed to really get the message out and to get the right traction around the commercial team. There will be some amount of infrastructure cost to get billing ready and all those kinds of things, but it's primarily getting feet on the street and getting that going. And then similarly for 2025, we expect the cost to be along those lines, really more to support what it takes to get the reach of the test out. We think we have enough capacity to accelerate this. We don't think there's much more needed from a footprint perspective. Having said that, one thing I do want to add is we're somewhat fortunate that we have a strong balance sheet. So we're going to pace the diagnostics opportunity as it develops. If it moves faster and it's worthwhile to spend more money on it, we'll move the lever. If it's moving slower and we need to pull back, we can do that as well. So we will continue to pace this but this is kind of our broad framework for now. And then to your question on margin on diagnostics, we don't expect margin at this stage to be negative or overly dilutive to our portfolio, but we just don't know enough about it right now. So as we gather more information and as we start to see more tests come back in, we'll have a better sense of what it looks like.

And our next question is going to come from the line of Sung Ji Nam with Scotiabank.

So just on the CANTATE and BioHerme studies you touched on it a little bit. But could you kind of elaborate on what are the endpoints being measured or what questions are being asked for the Phase 1 of the trial and then what are the next steps for both trials?

The clinical sample sets we are examining include patients with mild cognitive impairment and Alzheimer's disease dementia, sourced from the Amsterdam dementia cohort. Additionally, we recruited individuals with mild cognitive impairment and mild Alzheimer's in the BioHermes trial. The Amsterdam cohort involved memory clinics that analyzed cerebrospinal fluid, while the BioHermes trial included PET scans for amyloid status. Each patient underwent either a CSF analysis or a PET scan, which we then compared to our diagnostic test. From this, we established clinical thresholds and defined the specifications for our testing platform, which constitutes Phase 1. Moving into Phase 2 before CANTATE, we are enrolling prospective patients at memory centers to evaluate this in a multimarker context, expanding our approach from testing a single marker to analyzing four or five markers simultaneously.

And then just was curious, you mentioned in the press release that Eli Lilly launching their p-Tau 217 blood based diagnostics on the Quanterix platform. Are they using other platforms as well or are they pretty much just solely using the similar platform for now?

We are only aware of the Simoa platform for their 217 diagnostic tests. And they had published some very interesting data at the last conference, it was an ex-poster presentation that they had. So that's all we're aware of.

And then just lastly on the new platform under development, the increase in the complexity. Is that based on the Simoa platform or the Planar Array platform, or is it something totally different?

Based on Simoa technology and the Simoa platform, so it's the single molecule resolution but lossless sensitivity across multiple channels. So typically, when people look at things and you start to multiplex, you lose resolution as you add plexus. And so our goal with high sensitivity and precision for these key biomarkers is to make it lossless. And so it's based on that platform and the original technology, which was invented in the Walt lab.

Thank you. I'm not seeing any additional questions. This will wrap up the question-and-answer segment of today’s call. This will also conclude the conference call for today.